What changed in this filing

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Item 1. Business

2024-02-29 compared with 2023-02-28 · 289 added, 333 removed, 213 unchanged (74% of the section changed)

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and subsidiaries (collectively, “we”, “us”, “our” or the “Company”), operates its business through two reportable business segments.

Our reportable

segments consist of the physical therapy operations segment and the industrial injury prevention services segment.

Through our subsidiaries, we operate outpatient physical therapy clinics that provide pre-and post-operative care for a variety

of orthopedic-related disorders and sports-related injuries, treatment for neurological-related injuries and rehabilitation of injured workers.

We also have a majority interest in businesses which are leading providers of industrial injury

prevention services.

Our reportable segments consist of

the physical therapy operations segment and the industrial injury prevention services segment.

Through our subsidiaries, we operate outpatient physical therapy clinics that provide pre-and post-operative care for a variety of orthopedic-related

disorders and sports-related injuries, treatment for neurological-related injuries and rehabilitation of injured workers.

We also have a majority interest in businesses which are leading providers of industrial injury prevention services (“IIP”).

Services provided in this business include onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments.

The majority of the

industrial injury prevention services are contracted with and paid for directly by employers, including a number of Fortune 500 companies.

The majority of the IIP services are

contracted with and paid for directly by employers, including a number of Fortune 500 companies.

Other clients include large insurers and their contractors.

services are performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs).

Prior to the second quarter of 2020, we operated as a single segment.

All prior year segment information has been reclassified to conform to the current segment presentation.

We were re-incorporated in April 1992 under the laws of the State of Nevada and have operating subsidiaries organized in various states in the form of limited partnerships, limited

liability companies and wholly-owned corporations.

These services are performed through Industrial Sports Medicine Professionals, consisting

primarily of specialized certified athletic trainers (“ATCs”).

We were re-incorporated in April 1992 under the laws of the State of Nevada and have operating subsidiaries organized in various states in the form of limited partnerships, limited liability

companies and wholly-owned corporations.

This description of our business should be read in conjunction with our financial statements and the related notes contained in Item 8 in this Annual Report on Form 10-K.

Our principal

executive offices are located at 1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042.

Our principal executive offices are located at 1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042.

Our telephone number is (713) 297-7000.

Our website is www.usph.com.

Acquisitions of Businesses and Acquired Interests

During the last three years, we completed the acquisitions of eleven clinic practices and two industrial injury prevention services businesses as detailed below.

Acquisitions of Businesses and Interests

During the last three years, we completed the acquisitions of the following clinic practices and IIP businesses detailed below:

October 2023 Acquisition

October 31, 2023

September 2023 Acquisition 1

September 29, 2023

September 2023 Acquisition 2

September 29, 2023

July 2023 Acquisition

July 31, 2023

May 2023 Acquisition

February 2023 Acquisition

February 28, 2023

November 2022 Acquisition

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March 31, 2021

November 2020 Acquisition

November 30, 2020

September 2020 Acquisition

September 30, 2020

February 2020 Acquisition

February 27, 2020

Industrial injury prevention services business

The business includes six management contracts which have been in place for a number of years.As of the date acquired, the contracts had a remaining term of five years.

The four clinics are in four separate partnerships.

The Company's interest in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction.

On October 31, 2023, we concurrently acquired 100% of an IIP business and a 55% equity interest in an ergonomics software business (“October 2023 Acquisition”).

Our strategy is to continue acquiring outpatient physical therapy practices, develop outpatient physical therapy clinics as satellites in existing partnerships, and continue acquiring companies that

provide or serve the Company’s industrial injury prevention services sector.

On May 30, 2023, the Company completed a secondary offering of 1,916,667 shares of its common stock at an offering price of $90.00 per share.

Upon completion of the offering, the Company received

net proceeds of approximately $163.6 million, after deducting an underwriting discount of $8.6 million and recognizing related fees and expenses of $0.2 million.

A portion of the net proceeds was used to repay the $35.0 million then outstanding

under the Company’s credit facility while the remainder is expected to be used primarily for additional acquisitions.

OUR OPERATING SEGMENTS

Physical Therapy Operations

The physical therapy operations segment primarily operates through subsidiary clinic partnerships, in which the Company generally owns a 1% general partnership interest in the Clinic Partnerships.

The Company’s

limited partnership interests generally range from 65% to 75% (a range of 10%-99%) in the Clinic Partnerships.

The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics

(hereinafter referred to as “Clinic Partnerships”).

To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned

Facilities”).

We continue to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources by offering these therapists a competitive salary and

incentives based on the profitability of the clinic that they manage.

For multi-site clinic practices in which a controlling interest is acquired by us, the prior owners typically continue on as employees to manage the clinic operations,

retaining a non-controlling ownership interest in the clinics and receiving a competitive salary for managing the clinic operations.

In addition, we have developed satellite clinic facilities as part of existing Clinic Partnerships and

Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location.

In 2023, we intend to continue to acquire multi-clinic practices and to continue to

develop outpatient physical therapy clinics as satellites in existing partnerships, along with increasing our patient volume through marketing and new programs.

Therapists at our clinics initially perform a comprehensive evaluation of each patient, which is then followed by a treatment plan specific to the injury as prescribed by the patient’s physician.

treatment plan may include a number of procedures, including therapeutic exercise, manual therapy techniques, ultrasound, electrical stimulation, hot packs, iontophoresis, education on management of daily life skills and home exercise programs.

clinic’s business primarily comes from referrals by local physicians.

The principal sources of payment for the clinics’ services are managed care programs, commercial health insurance, Medicare/Medicaid and workers’ compensation insurance.

Besides the multi-clinic acquisitions referenced in the table above, during 2022 and 2021 we purchased the assets and business of three individual physical therapy clinics in separate transactions.

The clinics operate as satellite clinics of three of our existing clinic partnerships.

During the year ended December 31, 2022, we sold five clinics and closed eleven clinics.

The aggregate sales price was $0.3 million.

During the year ended December 31, 2021, we sold two clinics for an

aggregate sales price of $0.1 million, and we closed three clinics.

During the year ended December 31, 2020, we closed 34 clinics, and we sold 14 previously closed clinics for an aggregate sales price was $1.1 million.

Of the total sales price,

$0.7 million was paid in cash and $0.4 million in a note receivable which was fully received in June 2022.

On December 31, 2022, we operated 640 clinics in 40 states.

Our highest concentration of clinics are in the following states:

Texas, Tennessee, Michigan, Virginia, Florida, Oregon,

Maryland, Pennsylvania, Georgia, Arizona, Idaho, Missouri, Connecticut, South Carolina, and Alabama.

In addition to our 640 clinics,

on December 31, 2022, we also managed 40 physical therapy practices for unrelated physician groups and hospitals.

Most of our clinics are operated as Clinic Partnerships in which we own the general partnership interest and a majority of the limited partnership interests.

The managing healthcare

practitioner of the clinics usually owns a portion of the limited partnership interests.

Generally, the therapist partners have no interest in the net losses of Clinic Partnerships, except to the extent of their capital accounts.

Since we also

develop satellite clinic facilities of existing clinics, most Clinic Partnerships consist of more than one clinic location.

As of December 31, 2022, through wholly owned subsidiaries, we owned a 1% general partnership interest in all the Clinic

Partnerships.

Our limited partnership interests generally range from 65% to 75% in the Clinic Partnerships.

Our physical therapy operations segment primarily operates through subsidiary clinic partnerships (“Clinic Partnerships”), in which the Company generally owns a 1% general partnership interest in

the Clinic Partnerships.

The Company’s limited partnership interests generally range from 65% to 75% (a range of 10%-99%) in the Clinic Partnerships.

For the vast majority of the Clinic Partnerships, the managing healthcare practitioner is a

physical therapist who owns the remaining limited partnership interest in the Clinic Partnership.

For our Clinic Partnership agreements related to those in which we acquired a majority interest, generally, the prior management continues to own a 10% to 50% interest.

Typically, each therapist partner or director, including those employed by Clinic Partnerships in which we acquired a majority interest, enters into an employment agreement for a term of

up to five years with their Clinic Partnership.

Each agreement typically provides for a covenant not to compete during the period of his or her employment and for up to two years thereafter.

Under each employment agreement, the therapist

partner receives a base salary and may receive a bonus based on the net revenues or profits generated by their Clinic Partnership or specific clinic.

In the case of Clinic Partnerships, the therapist partner receives earnings distributions

based upon their ownership interest.

Upon termination of employment, we typically have the right to purchase the therapist’s partnership interest in Clinic Partnerships .

For those Clinic Partnerships we created in connection with an

acquisition, our partner also has the right to cause us to purchase their interest upon termination of their employment.

In connection with most of our acquired clinics, in the event that a limited minority partner’s employment ceases and certain requirements are met as detailed in the respective

limited partnership agreements, we have a call right (the “Call Right”) and the selling entity or individual has a put right (the “Put Right”) with respect to the partner’s limited partnership interests.

The Put Right and the Call Right do not

expire, even upon an individual partner’s death, and contain no mandatory redemption feature.

The purchase price of the partner’s limited partnership interest upon exercise of the Put Right or the Call Right is calculated at a predetermined

multiple of earnings performance as detailed in the respective agreements.

Each Clinic Partnership maintains an independent local identity, while at the same time enjoying the benefits of national purchasing, negotiated third-party payor contracts, centralized support

services and management practices.

Under a management agreement, one of our subsidiaries provides a variety of support services to each clinic, including supervision of site selection, construction, clinic design and equipment selection,

establishment of accounting systems and billing procedures and training of office support personnel, processing of accounts payable, operational direction, auditing of regulatory compliance, payroll, benefits administration, accounting services,

legal services, quality assurance and marketing support.

The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter

referred to as “Clinic Partnerships”).

Generally, the therapist partners have no interest in the net losses of Clinic Partnerships, except to the extent of their capital accounts.

Since we also develop satellite clinic facilities of existing

clinics, most Clinic Partnerships consist of more than one clinic location.

To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as

“Wholly-Owned Facilities”).

We operated 671 clinics in 42 states on December 31, 2023.

Our highest concentration of clinics is in the following states:

Texas, Tennessee, Michigan, Virginia, Florida, Oregon, Maryland,

Pennsylvania, Georgia, Missouri, Idaho, Arizona, South Carolina, Alabama and Connecticut.

In addition to our 671 clinics, we also managed 43 physical therapy practices for unrelated physician groups and hospitals as of December 31, 2023.

The table below indicates historical information regarding our clinic counts.

For the Year Ended

December 31, 2023

December 31, 2022

December 31, 2021

Number of clinics, beginning of period

Closed or sold

Number of clinics, end of period

Our typical clinic occupies 1,000 to 7,000 square feet of leased space in an office building or shopping center.

There are 25 clinics occupying space in the range of over 7,000 square feet to 16,500

We attempt to lease ground level space for patient ease of access to our clinics.

Typical minimum staff at a clinic consists of a licensed physical therapist and an office manager.

As patient visits grow, staffing may also include additional physical therapists, occupational

therapists, therapy assistants, aides, exercise physiologists, athletic trainers and office personnel.

Therapy services are performed under the supervision of a licensed therapist.

We attempt to lease ground level space for our patients’ ease of access to our clinics.

Each Clinic Partnership maintains an independent local identity, while at the same time enjoying the benefits of national purchasing, negotiated third-party payor contracts, centralized support

services and management practices.

Under a management agreement, the Company provides a variety of support services to each clinic, including supervision of site selection, construction, clinic design and equipment selection, establishment of

accounting systems and billing procedures and training of office support personnel, processing of accounts payable, operational direction, auditing of regulatory compliance, payroll, benefits administration, accounting services, legal services,

quality assurance and marketing support.

We provide services at our clinics on an outpatient basis.

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We continually assess the potential for developing new services and expanding the methods of providing our existing services in the most efficient manner while providing high quality patient

Factors Influencing Demand For Physical Therapy Services

We believe that the following factors, among others, influence the growth of outpatient physical therapy services:

Economic Benefits of Therapy Services .

Purchasers and providers of healthcare services, such as insurance companies, health maintenance organizations,

businesses and industries, continuously seek cost savings for traditional healthcare services.

We believe that our therapy services provide a cost-effective way to prevent short-term disabilities from becoming chronic conditions, to help avoid

invasive procedures, to speed recovery from surgery and musculoskeletal injuries and eliminate or minimize the need for opioids.

Earlier Hospital Discharge.

Changes in health insurance reimbursement, both public and private, have encouraged the earlier discharge of patients to reduce costs.

We believe that early hospital discharge practices foster greater demand for outpatient physical therapy services.

Aging Population.

In general, the elderly population has a greater incidence of disability compared to the population as a whole.

As this segment of the population continues to grow, we believe that demand for rehabilitation services will expand.

Increase in Obesity.

Two of every three American men are considered to be overweight or obese and the rate continues to grow.

The strain on a person’s

body can be significant.

Physical therapy services help the obese become more active and fit by teaching them how to move in ways that are pain free.

We focus our marketing efforts primarily on physicians, including orthopedic surgeons, neurosurgeons, physiatrists, internal medicine physicians, podiatrists, occupational medicine physicians and

general practitioners.

In marketing to the physician community, we emphasize our commitment to quality patient care and regular communication with physicians regarding patient progress.

We employ personnel to assist clinic directors in developing

and implementing marketing plans for the physician community and to assist in establishing relationships with health maintenance organizations, preferred provider organizations, case managers and insurance companies.

Industrial Injury Prevention Services

Services provided in the industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations,

and ergonomic assessments.

The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies.

Other clients include large insurers and their contractors.

Our Company performs these

services through Industrial Sports Medicine Professionals, consisting of both physical therapists and ATCs.

In March 2017, we acquired a 55%

interest in an initial industrial injury prevention services business.

On April 30, 2018, we acquired a 65% interest in another business in the industrial injury prevention sector and then we combined the two businesses.

After the combination,

we owned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”).

On April 11, 2019, we acquired 100% of a third provider of industrial injury prevention services.

The acquired company specializes in

delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services.

It performs these services across a network in 45 states including onsite at eleven client locations.

was then combined with Briotix Health increasing our ownership position in the partnership to approximately 76.0%.

On September 30, 2021, we acquired a company that specializes in return-to-work and ergonomic services, among other offerings and

contributed those assets to Briotix Health.

Subsequent to this acquisition and the purchase of the redeemable non-controlling interest of one of the limited partners, our ownership in Briotix Health is approximately 85%.

On November 30, 2021, we acquired an approximate 70.0% interest in a leading provider of industrial injury prevention services (“IIP Acquisition”).

The founders and owners retained the remaining

Therapists at our clinics initially perform a comprehensive evaluation of each patient, which is then followed by a treatment plan specific to the injury as prescribed by the patient’s physician.

The treatment plan may include a number of procedures, including therapeutic exercise, manual therapy techniques, ultrasound, electrical stimulation, hot packs, iontophoresis, education on management of daily life skills and home exercise

A clinic’s business primarily comes from referrals by local physicians.

Patient Care Providers and Staffing

Typical minimum staff at a clinic consists of a licensed physical therapist and an office manager.

As patient visits grow, staffing may also include additional physical therapists, occupational

therapists, therapy assistants, aides, exercise physiologists, athletic trainers and office personnel.

Therapy services are performed under the supervision of a licensed therapist.

We continue to seek to attract employment of physical therapists who have established relationships with physicians and other referral sources by offering these therapists a competitive salary and

incentives based on the profitability of the clinic that they manage.

For multi-site clinic practices in which a controlling interest is acquired by us, the prior owners typically continue as employees to manage the clinic operations, retaining a

non-controlling ownership interest in the clinics and receiving a competitive salary for managing the clinic operations.

In addition, we have developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned

Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location.

In 2024, we intend to continue to acquire multi-clinic practices and to continue to develop outpatient

physical therapy clinics as satellites in existing partnerships, along with increasing our patient volume through marketing and new programs.

Typically, each therapist partner or director, including those employed by Clinic Partnerships in which we acquired a majority interest, enters into a multi-year employment agreement for a term of

up to five years with their Clinic Partnership.

Each agreement typically provides for a covenant not to compete during the period of his or her employment and for up to two years thereafter.

Under each employment agreement, the therapist partner

receives a base salary and may receive a bonus based on the net revenues or profits generated by their Clinic Partnership or specific clinic.

In the case of Clinic Partnerships, the therapist partner receives earnings distributions based upon

their ownership interest.

Upon termination of employment, we typically have the right to purchase the therapist’s partnership interest in Clinic Partnerships.

For those Clinic Partnerships we created in connection with an acquisition, our partner

also has the right to cause us to purchase their interest upon termination of their employment, generally after a set holding period.

In connection with most of our acquired clinics, in the event that a limited non-controlling interest partner’s employment ceases and certain requirements are met as detailed in the respective

The Put Right and the Call Right do not

expire, even upon an individual partner’s death, and contain no mandatory redemption feature.

The purchase price of the partner’s limited partnership interest upon exercise of the Put Right or the Call Right is calculated at a predetermined

multiple of earnings performance as detailed in the respective agreements.

Sources of Revenue

Physical Therapy Operations

Payor sources for physical therapy operations are primarily managed care programs, commercial health insurance, Medicare/Medicaid and workers’ compensation insurance.

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Bad debt reserves relating to all receivable types are regularly reviewed and adjusted as appropriate.

The following table shows our payor mix for the years ended ($ in thousands):

The following table shows our payor mix for the periods presented.

For the Year Ended

December 31, 2023

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December 31, 2021

Managed Care Programs/ Commercial Health Insurance

Managed Care Programs/

(In thousands, except percentages)

Commercial Health Insurance

Medicare/Medicaid

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The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”).

For services provided in 2017 through 2019, a 0.5% increase was applied to

the fee schedule payment rates before applying the mandatory budget neutrality adjustment.

For services provided in 2020 through 2025 no adjustment is expected to be applied each year to the fee schedule payment rates, before applying the

mandatory budget neutrality adjustment.

In the 2020 MPFS Final Rule, CMS revised coding, documentation guidelines, and increased the code values for office/outpatient evaluation and management (“E/M”) codes and cuts to other codes to

maintain budget neutrality of the MPFS beginning in 2021.

Under the 2021 MPFS Final Rule, CMS increased the values for the E/M office visit codes and made cuts to other specialty codes to maintain budget neutrality.

As a result, CMS projected a

9% decrease in fee schedule payment rates for therapy services set to take effect in 2021.

However, Congress intervened with passage of the Consolidated Appropriations Act, 2021 and reimbursement for the codes applicable to physical/occupational

therapy services provided by our clinics received an estimated 3.5% decrease in the aggregate in payment from Medicare in calendar year 2021 as compared to 2020.

In the 2022 MPFS Final Rule, there was to be an approximately 3.75% reduction to Medicare payments for physical/occupational therapy services.

This was due to the expiration of the additional funding

to the conversion factor provided by Congress in 2021 under the Consolidated Appropriations Act, 2021.

In 2021 the MPFS established by Centers for Medicare and Medicaid Services (“CMS”) resulted in an approximate 3.5% decrease in the reimbursement for the codes applicable to physical/occupational

therapy services provided by our clinics, as compared to 2020.

Since January 1, 2022, outpatient therapy services furnished in whole or part by a therapist assistant are paid at an amount equal to 85% of the payment amount otherwise applicable

for the service.

For 2022, the MPFS Final Rule was to be an approximately 3.75% reduction to Medicare payments for physical/occupational therapy services.

This was due to the expiration of the additional funding to

the conversion factor provided by Congress in 2021 under the Consolidated Appropriations Act, 2021.

However, this reduction was addressed in the Protecting Medicare and American Farmers from Sequester Cuts Act (“2021 Act”) signed into law on

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Based on various provisions in the 2021 Act, the Medicare rate reduction for 2022 was approximately 0.75%.

The 2021 Act did not address the 15% reduction in Medicare payments for services performed by a physical or occupational

therapist assistant, which began on January 1, 2022.

In the 2023 MPFS Proposed Rule published on July 7, 2022, CMS proposed a 4.5% reduction in the Physician Fee Schedule conversion factor.

However, this reduction was addressed in the Consolidated

Appropriations Act, 2023 (“2023 Act”) signed into law on December 29, 2022.

The provisions of the 2023 Act increase the conversion factor by 2.5% for 2023 and by 1.25% for 2024.

This results in an overall reduction of approximately 2% in the

2023 Physician Fee Schedule conversion factor for 2023.

In the 2023 MPFS Proposed Rule, CMS proposed a 4.5% reduction in the Physician Fee Schedule conversion factor.

However, this reduction was later addressed in the Consolidated Appropriations Act,

2023 (“2023 Act”).

The provisions of the 2023 Act increased the conversion factor by 2.5% for 2023 and by 1.25% for 2024, resulting in an overall reduction of approximately 2% in the 2023 Physician Fee Schedule conversion factor for 2023.

2024 MPFS Final Rule, CMS decreased the Physician Fee Schedule conversion factor by 3.39%, which is estimated to result in an approximately 3.5% reduction in reimbursement for the codes applicable to physical/occupational therapy services

provided by our clinics, as compared to 2023, unless these reductions are otherwise mitigated by further action of Congress.

The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years and requires automatic reductions in federal spending by approximately

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Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap.

In 2013, a 2% reduction to Medicare payments was implemented.

The Bipartisan Budget Act of 2015 extended the 2% reductions to

Medicare payments through fiscal year 2025.

The Bipartisan Budget Act of 2018 extends the 2% reductions to Medicare payments through fiscal year 2027.

The CARES Act suspended the 2% payment reduction to Medicare payments for dates of service from

May 1, 2020, through December 31, 2020, and the Consolidated Appropriations Act, 2021 further suspended the 2% payment reduction through March 2021.

In April 2021, additional legislation was enacted that waived the 2% payment reduction for the

remainder of calendar 2021.

The 2021 Act included a three-month extension of the 2% sequester relief applied to all Medicare payments through March 2022, followed by three months of 1% sequester relief through June 30, 2022.

Sequester relief

ended on June 30, 2022.

The Bipartisan Budget Act of 2018 extended the 2% reductions to Medicare payments through fiscal year 2027.

The CARES Act

suspended the 2% payment reduction to Medicare payments for dates of service from May 1, 2020, through December 31, 2020, and the Consolidated Appropriations Act, 2021 further suspended the 2% payment reduction through March 2021.

In April 2021,

additional legislation was enacted that waived the 2% payment reduction for the remainder of calendar 2021.

The 2021 Act included a three-month extension of the 2% sequester relief applied to all Medicare payments through March 2022, followed by

three months of 1% sequester relief through June 30, 2022.

Sequester relief ended on June 30, 2022.

Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the fee schedule may be subject to adjustment based on performance in the Merit

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enrolled with Medicare as private practice providers and does not include therapists in facility-based providers, such as our clinics enrolled as certified rehabilitation agencies.

Less than 3% of the Company’s therapist providers currently

participate in MIPS.

Under the MIPS requirements, a provider’s performance is assessed according to established performance standards each year and then is used to determine an adjustment factor that is applied to the professional’s payment for

the corresponding payment year.

Less than 3% of our therapist providers currently participate in

corresponding payment year.

The provider’s MIPS performance in 2021 determined the payment adjustment in 2023.

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The 2024 adjustment for those therapist providers who participated in MIPS during 2022 is expected to remain at an average increase of 1%.

Under the Middle-Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met or exceeded $3,700 in therapy expenditures during a calendar year have been subject to

a manual medical review to determine whether applicable payment criteria are satisfied.

The $3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services; a separate $3,700 threshold is applied to the Occupational

to a manual medical review to determine whether applicable payment criteria are satisfied.

The $3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services;

a separate $3,700 threshold is applied to the Occupational

The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) directed CMS to modify the manual medical review process such that those reviews will no longer apply to all claims exceeding the $3,700 threshold and instead will be

determined on a targeted basis based on a variety of factors that CMS considers appropriate.

The Bipartisan Budget Act of 2018 extends the targeted medical review indefinitely but reduces the threshold to $3,000 through December 31, 2027.

The Bipartisan Budget Act of 2018 extended the targeted medical review indefinitely but reduces the threshold to $3,000 through December 31, 2027.

For 2028, the threshold amount will be increased by

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CMS adopted a multiple procedure payment reduction (“MPPR”) for therapy services in the final update to the MPFS for calendar year 2011.

The MPPR applied to all outpatient therapy services paid under

Medicare Part B — occupational therapy, physical therapy and speech-language pathology.

The MPPR applied to all outpatient therapy services paid

under Medicare Part B — occupational therapy, physical therapy and speech-language pathology.

Under the policy, the Medicare program pays 100% of the practice expense component of the Relative Value Unit (“RVU”) for the therapy procedure with the

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In 2013, the practice expense component for the second and subsequent therapy service furnished during the same day for the same patient was reduced by 50%.

Medicare claims for outpatient therapy services furnished by therapist assistants on or after January 1, 2020, must include a modifier indicating the service was furnished by a therapist assistant.

Outpatient therapy services furnished on or after January 1, 2022, in whole or part by a therapist assistant are paid at an amount equal to 85% of the payment amount otherwise applicable for the service.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that sufficiently compensate

us for our services or, in some instances, cover our operating costs.

Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue, financial condition and results of operations.

Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results of operations.

Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation.

The Company believes that it is in compliance,

in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s financial statements

as of December 31, 2022.

We believe that we are in compliance, in all

material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on our financial statements as of December

Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program.

the year ended December 31, 2022, and 2021, respectively, net patient revenue from Medicare were approximately $154.9 million and $134.4 million, respectively.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, the Company may not continue to receive reimbursement rates from Medicare that sufficiently

compensate it for the Company’s services or, in some instances, cover the Company’s operating costs.

Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on the Company’s revenue, financial

condition and results of operations.

Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect the Company’s business, financial

condition and results of operations.

We focus our marketing efforts primarily on physicians, including orthopedic surgeons, neurosurgeons, physiatrists, internal medicine physicians, podiatrists, occupational medicine physicians and

general practitioners.

In marketing to the physician community, we emphasize our commitment to quality patient care and regular communication with physicians regarding patient progress.

We employ personnel to assist clinic directors in developing

Industrial Injury Prevention Services

Services provided in this business include onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic

Services provided in the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic

The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies.

Other clients include large insurers and their contractors.

These services are performed through

Industrial Sports Medicine Professionals, consisting of both physical therapists and ATCs.

Our Company performs these services

through Industrial Sports Medicine Professionals, consisting of both physical therapists and ATCs.

In March 2017, we acquired a 55% interest in an initial IIP business.

On April 30, 2018, we acquired a 65% interest in another business in the IIP sector and then we combined the two businesses.

After the combination, we owned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”).

On April 11, 2019, we acquired 100% of a third provider of industrial injury prevention services.

company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services.

It performs these services across a network in 45 states including onsite at eleven client

The business was then combined with Briotix Health increasing our ownership position in the partnership to approximately 76%.

On September 30, 2021, we acquired a company that specializes in return-to-work and ergonomic services,

among other offerings and contributed those assets to Briotix Health.

On October 31, 2023, we made another acquisition and purchased 100% of an IIP business and contributed its assets to Briotix Health.

As part of the October 2023 Acquisition,

we also acquired a 55% interest in an ergonomics software business.

Subsequent to the abovementioned acquisitions and the purchases and sales of the redeemable non-controlling interests of the limited partners, our ownership in Briotix Health

is approximately 92%.

On November 30, 2021, we acquired an approximate 70% interest in another leading provider of IIP services.

The founders and owners retained the remaining interest.

Factors Influencing Demand for Physical Therapy Services

We believe that the following factors, among others, influence the growth of outpatient physical therapy services:

Economic Benefits of Therapy Services – Purchasers and providers of healthcare services, such as insurance companies, health maintenance organizations, businesses, and

industries, continuously seek cost savings for traditional healthcare services.

We believe that our therapy services provide a cost-effective way to prevent short-term disabilities from becoming chronic conditions, to help avoid invasive

procedures, to speed recovery from surgery and musculoskeletal injuries and eliminate or minimize the need for opioids.

Earlier Hospital Discharge – Changes in health insurance reimbursement, both public and private, have encouraged the earlier discharge of patients to reduce costs.

believe that early hospital discharge practices foster greater demand for outpatient physical therapy services.

Aging Population – In general, the elderly population has a greater incidence of disability compared to the population as a whole.

As this segment of the population

continues to grow, we believe that demand for rehabilitation services will expand.

REGULATION AND HEALTHCARE REFORM

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Various federal and state laws regulate financial relationships involving providers of healthcare services.

These laws include Section 1128B(b) of the Social Security Act (42 U.S.

§ 1320a-7b[b]) (the “Fraud and Abuse Law”), under which civil and criminal penalties can be imposed upon persons who, among other

things, offer, solicit, pay or receive remuneration in return for (i) the referral of patients for the rendering of any item or service for which payment may be made, in whole or in part, by a Federal health care program (including Medicare and

or (ii) purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, ordering any good, facility, service, or item for which payment may be made, in whole or in part, by a Federal health care program (including

Medicare and Medicaid).

We believe that our business procedures and business arrangements are in compliance with these provisions.

However, the provisions are broadly written and the full extent of their specific application to specific facts and

arrangements to which we are a party is uncertain and difficult to predict.

These laws include Section 1128B(b) of the Social

Security Act (42 U.S.

§ 1320a-7b[b]) (the “Fraud and Abuse Law”), under which civil and criminal penalties can be imposed upon persons who, among other things, offer, solicit, pay or receive remuneration in return for (i) the referral of

patients for the rendering of any item or service for which payment may be made, in whole or in part, by a Federal health care program (including Medicare and Medicaid);

or (ii) purchasing, leasing, ordering, or arranging for or recommending

purchasing, leasing, ordering any good, facility, service, or item for which payment may be made, in whole or in part, by a Federal health care program (including Medicare and Medicaid).

We believe that our business procedures and business

arrangements are in compliance with these provisions.

However, the provisions are broadly written and the full extent of their specific application to specific facts and arrangements to which we are a party is uncertain and difficult to predict.

In addition, several states have enacted state laws similar to the Fraud and Abuse Law, which may be more restrictive than the federal Fraud and Abuse Law.

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The OIG also has issued special fraud alerts and special advisory bulletins to remind the provider community of the importance and application of certain aspects of the Fraud and Abuse Law.

OIG special fraud alerts related to the rental of space in physician offices by persons or entities to which the physicians refer patients.

The OIG’s stated concern in these arrangements is that rental payments may be disguised kickbacks to the

physician-landlords to induce referrals.

We rent clinic space for some of our clinics from referring physicians and have taken the steps that we believe are necessary to ensure that all leases comply to the extent possible and applicable, with

the space rental Safe Harbor to the Fraud and Abuse Law.

the OIG special fraud alerts related to the rental of space in physician offices by persons or entities to which the physicians refer patients.

The OIG’s stated concern in these arrangements is that rental payments may be disguised kickbacks to

the physician-landlords to induce referrals.

We rent clinic space for some of our clinics from referring physicians and have taken the steps that we believe are necessary to ensure that all leases comply to the extent possible and applicable,

with the space rental Safe Harbor to the Fraud and Abuse Law.

One of the OIG’s special advisory bulletins addressed certain complex contractual arrangements for the provision of items and services.

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Due to the nature of our business operations, some of our management service arrangements exhibit one or more of these characteristics.

However, we believe we have taken steps regarding the structure

of such arrangements as necessary to sufficiently distinguish them from these suspect ventures, and to comply with the requirements of the Fraud and Abuse Law.

However, if the OIG believes we have entered into a prohibited contractual joint

venture, it could have an adverse effect on our business, financial condition and results of operations.

However, we believe we have taken steps regarding the

structure of such arrangements as necessary to sufficiently distinguish them from these suspect ventures, and to comply with the requirements of the Fraud and Abuse Law.

However, if the OIG believes we have entered into a prohibited contractual

joint venture, it could have an adverse effect on our business, financial condition and results of operations.

Although the business of managing physician-owned and hospital-owned physical therapy facilities is regulated by the Fraud and Abuse Law, the manner in which we contract with such facilities often

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Provisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C.

§ 1395nn) (the “Stark Law”) prohibit referrals by a physician of “designated

health services” which are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subject to several

Unlike the Fraud and Abuse Law, the Stark Law is a strict liability statute.

§ 1395nn) (the “Stark Law”) prohibit referrals by a physician of “designated health services” which are payable, in whole or in

part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subject to several exceptions.

Unlike the Fraud and Abuse Law, the Stark Law

is a strict liability statute.

Proof of intent to violate the Stark Law is not required.

Physical therapy and occupational therapy services are among the “designated health services”.

Further, the Stark Law has application to our management contracts with individual physicians and physician groups, as well as any other financial relationship between us and referring physicians, including medical advisor arrangements and any

financial transaction resulting from a clinic acquisition.

Further, the Stark Law has application to our management

contracts with individual physicians and physician groups, as well as any other financial relationship between us and referring physicians, including medical advisor arrangements and any financial transaction resulting from a clinic acquisition.

The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral.

Several states have enacted laws similar to the Stark Law.

These state laws may cover all

(not just Medicare and Medicaid) patients.

As with the Fraud and Abuse Law, we consider the Stark Law in planning our clinics, establishing contractual and other arrangements with physicians, marketing and other activities, and believe that our

operations are in compliance with the Stark Law.

If we violate the Stark Law or any similar state laws, our financial results and operations could be adversely affected.

Penalties for violations include denial of payment for the services,

significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs.

In an effort to further combat healthcare fraud and protect patient confidentially, Congress included several anti-fraud measures in the Health

Insurance Portability and Accountability Act of 1996 (“HIPAA”).

HIPAA created a source of funding for fraud control to coordinate federal, state and local healthcare law enforcement programs, conduct investigations, provide guidance to the

healthcare industry concerning fraudulent healthcare practices, and establish a national data bank to receive and report final adverse actions.

These state laws may cover all (not just Medicare and Medicaid) patients.

As with the Fraud

and Abuse Law, we consider the Stark Law in planning our clinics, establishing contractual and other arrangements with physicians, marketing and other activities, and believe that our operations are in compliance with the Stark Law.

If we violate

the Stark Law or any similar state laws, our financial results and operations could be adversely affected.

Penalties for violations include denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare

and Medicaid programs.

In an effort to further combat healthcare fraud and protect patient confidentially, Congress included several anti-fraud measures in the Health Insurance Portability and Accountability Act of 1996

HIPAA created a source of funding for fraud control to coordinate federal, state and local healthcare law enforcement programs, conduct investigations, provide guidance to the healthcare industry concerning fraudulent healthcare

practices, and establish a national data bank to receive and report final adverse actions.

HIPAA also criminalized certain forms of health fraud against all public and private payors.

Additionally, HIPAA mandates the adoption of standards regarding the exchange of healthcare information in an effort to ensure the privacy and electronic security of patient information and standards relating to the privacy of health information.

Sanctions for failing to comply with HIPAA include criminal penalties and civil sanctions.

Additionally, HIPAA mandates the adoption of standards

regarding the exchange of healthcare information in an effort to ensure the privacy and electronic security of patient information and standards relating to the privacy of health information.

Sanctions for failing to comply with HIPAA include

criminal penalties and civil sanctions.

In February of 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law.

Title XIII of ARRA, the Health Information Technology

for Economic and Clinical Health Act (“HITECH”), provided for substantial Medicare and Medicaid incentives for providers to adopt electronic health records (“EHRs”) and grants for the development of health information exchange (“HIE”).

Recognizing that HIE and EHR systems will not be implemented unless the public can be assured that the privacy and security of patient information in such systems is protected, HITECH also significantly expanded the scope of the privacy and

security requirements under HIPAA.

Most notable are the mandatory breach notification requirements and a heightened enforcement scheme that includes increased penalties, and which now apply to business associates as well as to covered entities.

In addition to HIPAA, a number of states have adopted laws and/or regulations applicable in the use and disclosure of individually identifiable health information that can be more stringent than comparable provisions under HIPAA.

Title XIII of ARRA, the Health Information Technology for Economic and Clinical Health Act (“HITECH”),

provided for substantial Medicare and Medicaid incentives for providers to adopt electronic health records (“EHRs”) and grants for the development of health information exchange (“HIE”).

Recognizing that HIE and EHR systems will not be

implemented unless the public can be assured that the privacy and security of patient information in such systems is protected, HITECH also significantly expanded the scope of the privacy and security requirements under HIPAA.

Most notable are

the mandatory breach notification requirements and a heightened enforcement scheme that includes increased penalties, and which now apply to business associates as well as to covered entities.

In addition to HIPAA, a number of states have adopted

laws and/or regulations applicable in the use and disclosure of individually identifiable health information that can be more stringent than comparable provisions under HIPAA.

We believe that our operations comply with applicable standards for privacy and security of protected healthcare information.

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Political, economic and regulatory influences are fundamentally changing the healthcare industry in the United States.

state legislatures and the private sector continue to review and assess alternative healthcare delivery and payment systems.

Potential alternative approaches could include mandated basic healthcare benefits, controls on healthcare spending

through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, and price controls.

Legislative debate is expected to continue in the future and market

forces are expected to demand only modest increases or reduced costs.

For instance, managed care entities are demanding lower reimbursement rates from healthcare providers and, in some cases, are requiring or encouraging providers to accept

capitated payments that may not allow providers to cover their full costs or realize traditional levels of profitability.

We cannot reasonably predict what impact the adoption of federal or state healthcare reform measures or future private

sector reform may have on our business.

Congress, state legislatures and the private sector continue to review and

assess alternative healthcare delivery and payment systems.

Potential alternative approaches could include mandated basic healthcare benefits, controls on healthcare spending through limitations on the growth of private health insurance premiums

and Medicare and Medicaid spending, the creation of large insurance purchasing groups, and price controls.

Legislative debate is expected to continue in the future and market forces are expected to demand only modest increases or reduced costs.

For instance, managed care entities are demanding lower reimbursement rates from healthcare providers and, in some cases, are requiring or encouraging providers to accept capitated payments that may not allow providers to cover their full costs

or realize traditional levels of profitability.

We cannot reasonably predict what impact the adoption of federal or state healthcare reform measures or future private sector reform may have on our business.

The healthcare industry, including the physical therapy business and the industrial injury prevention services business, is highly competitive.

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intense competition if consolidation of the therapy industry continues.

We believe that our strategy of providing key therapists in a community with an opportunity to participate in ownership or clinic profitability provides us with a competitive advantage by helping to

ensure the commitment of local management to the success of the clinic.

We also believe that our competitive position is enhanced by our strategy of locating our clinics, when possible, on the ground floor of buildings and shopping centers with nearby parking, thereby

making the clinics more easily accessible to patients.

We offer convenient hours.

We also attempt to make the decor in our clinics less institutional and more aesthetically pleasing than traditional hospital clinics.

We believe that our partnership strategy provides us with a competitive advantage.

Our clinics are partly owned by therapists who have developed exceptional reputations in their local communities

and these therapist-owners oversee their respective clinic operations helping to ensure the success of the clinics.

ENFORCEMENT ENVIRONMENT

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programs and applicable laws and regulations.

In addition, our prior Corporate Integrity Agreement, which expired in February 2021, required annual audits to be performed by an independent review organization on a small sample of our clinics, the

results of which were reported to the federal government.

Managed care payors may also reserve the right to conduct audits.

There were no adverse findings noted as a result of the abovementioned audits.

An adverse inspection, review, audit or

investigation could result in refunding amounts we have been paid;

Federal, state and private payors regularly conduct audits of billing and coding practices at our clinics.

An adverse inspection, review, audit or investigation could result in refunding amounts we

have been paid;

fines penalties and/or revocation of billing privileges for the affected clinics;

the imposition of a new Corporate Integrity Agreement;

exclusion from participation in the

Medicare or Medicaid programs or one or more managed care payor networks;

the imposition of a corporate integrity agreement;

exclusion from participation in the Medicare or Medicaid programs or one or more managed care

payor networks;

or damage to our reputation.

We and our clinics are subject to federal and state laws prohibiting entities and individuals from knowingly and willfully making claims to Medicare, Medicaid and other governmental programs and third

party payors that contain false or fraudulent information.

We and our clinics are subject to federal and state laws prohibiting entities and individuals from knowingly and willfully making claims to Medicare, Medicaid and other governmental programs and

third-party payors that contain false or fraudulent information.

The federal False Claims Act encourages private individuals to file suits on behalf of the government against healthcare providers such as us.

As such suits are generally filed under seal

with a court to allow the government adequate time to investigate and determine whether it will intervene in the action, the implicated healthcare providers often are unaware of the suit until the government has made its determination and the

seal is lifted.

Violations or alleged violations of such laws, and any related lawsuits, could result in (i) exclusion from participation in Medicare, Medicaid and other federal healthcare programs, or (ii) significant financial or criminal

sanctions, resulting in the possibility of substantial financial penalties for small billing errors that are replicated in a large number of claims, as each individual claim could be deemed a separate violation.

In addition, many states also have

enacted similar statutes, which may include criminal penalties, substantial fines, and treble damages.

As such suits are generally filed

under seal with a court to allow the government adequate time to investigate and determine whether it will intervene in the action, the implicated healthcare providers often are unaware of the suit until the government has made its determination

and the seal is lifted.

criminal sanctions, resulting in the possibility of substantial financial penalties for small billing errors that are replicated in a large number of claims, as each individual claim could be deemed a separate violation.

In addition, many states

also have enacted similar statutes, which may include criminal penalties, substantial fines, and treble damages.

COMPLIANCE PROGRAM

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Our ongoing success depends upon our reputation for quality service and ethical business practices.

We operate in a highly regulated

environment with many federal, state and local laws and regulations.

We operate in a highly regulated environment with many federal, state and local laws and

We take a proactive interest in understanding and complying with the laws and regulations that apply to our business.

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We also have established systems for reporting potential violations, educating our employees, monitoring and auditing compliance and handling enforcement and discipline.

Our Compliance Committee, appointed by the Board, consists of five independent directors.

The Compliance Committee has general oversight of our

Company’s compliance with the legal and regulatory requirements regarding healthcare operations.

Our Compliance Committee, appointed by the Board, consists of four independent directors.

The Compliance Committee has general oversight of our Company’s compliance with the legal and regulatory

requirements regarding healthcare operations, as well as cybersecurity.

The Compliance Committee relies on the expertise and knowledge of management, the CCO and other compliance and legal personnel.

The CCO regularly

communicates with the Chairman of the Compliance Committee.

The Compliance Committee meets at least four times a year or more frequently as necessary to carry out its responsibilities and reports regularly to the Board regarding its actions and

recommendations.

The CCO regularly communicates with the

Chairman of the Compliance Committee.

The Compliance Committee meets at least four times a year or more frequently as necessary to carry out its responsibilities and reports regularly to the Board regarding its actions and recommendations.

We also have an Internal Compliance Committee, which is comprised of Company leaders in the areas of operations, clinical services, finance, human resources, legal, information technology and

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Reporting Violations

In order to facilitate our employees’ ability to report in confidence, anonymously and without retaliation any perceived improper

work-related activities, accounting irregularities and other violations of our compliance program, we have set up an independent national compliance hotline.

The compliance hotline is available to receive confidential reports of wrongdoing Monday

through Friday (excluding holidays), 24 hours a day.

The compliance hotline is staffed by experienced third party professionals trained to utilize utmost care and discretion in handling sensitive issues and confidential information.

information received is documented and forwarded timely to the CCO, who, together with the Compliance Committee, has the power and resources to investigate and resolve matters of improper conduct.

In order to facilitate our employees’ ability to report in confidence, anonymously and without retaliation any perceived improper work-related activities, accounting irregularities and other

violations of our compliance program, we have set up an independent national compliance hotline.

The compliance hotline is available to receive confidential reports of wrongdoing Monday through Friday (excluding holidays), 24 hours a day.

compliance hotline is staffed by experienced third party professionals trained to utilize utmost care and discretion in handling sensitive issues and confidential information.

The information received is documented and forwarded timely to the

CCO, who, together with the Compliance Committee, has the power and resources to investigate and resolve matters of improper conduct.

Educating Our Employees

We utilize numerous methods to train our employees in compliance related issues, including an online learning management system.

employees complete a comprehensive training program comprised of numerous modules relating to our business and proper practices when newly hired and annually thereafter.

The directors/administrators also provide periodic “refresher” training for

existing employees and one-on-one comprehensive training with new hires.

The corporate compliance group responds to questions from clinic personnel and conducts frequent teleconference meetings, webinars and training sessions on a variety of

compliance related topics.

All employees complete a comprehensive training program comprised of

numerous modules relating to our business and proper practices when newly hired and annually thereafter.

The directors/administrators also provide periodic “refresher” training for existing employees and one-on-one comprehensive training with new

The corporate compliance group responds to questions from clinic personnel and conducts frequent teleconference meetings, webinars and training sessions on a variety of compliance related topics.

When a clinic opens, we provide a package of compliance materials containing manuals and detailed instructions for meeting Medicare Conditions of Participation Standards and other compliance

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Monitoring and Auditing Clinic Operational Compliance

We have in place audit programs and other procedures to monitor and audit clinic operational compliance

with applicable policies and procedures.

We employ internal auditors who, as part of their job responsibilities, conduct periodic audits of each clinic.

Most clinics are audited at least once every 24 months and additional focused audits are

performed as deemed necessary.

During these audits, particular attention is given to compliance with Medicare and internal policies, Federal and state laws and regulations, third party payor requirements, and patient chart documentation, billing,

reporting, record keeping, collections and contract procedures.

The audits are conducted on site or remotely and include interviews with the employees involved in management, operations, billing and accounts receivable.

We have in place audit programs and other procedures to monitor and audit clinic operational compliance with applicable policies and procedures.

We employ internal auditors who, as part of their job

responsibilities, conduct periodic audits of each clinic.

Most clinics are audited at least once every 24 months and additional focused audits are performed as deemed necessary.

During these audits, particular attention is given to compliance

with Medicare and internal policies, Federal and state laws and regulations, third party payor requirements, and patient chart documentation, billing, reporting, record keeping, collections and contract procedures.

The audits are conducted on

site or remotely and include interviews with the employees involved in management, operations, billing and accounts receivable.

Formal audit reports are prepared and reviewed with corporate management and the Compliance Committee.

Each clinic director/administrator receives a letter instructing them of any corrective measures

Each clinic director/administrator receives a letter instructing them of any corrective

measures required.

Each clinic director/administrator then works with the compliance team and operations to ensure such corrective measures are achieved.

Handling Enforcement and Discipline

It is our policy that any employee who fails to comply with compliance program requirements or who negligently or

deliberately fails to comply with known laws or regulations specifically addressed in our compliance program should be subject to disciplinary action up to and including discharge from employment.

The Compliance Committee, compliance staff, human

resources staff and management investigate violations of our compliance program and impose disciplinary action as considered appropriate.

Corporate Integrity Agreement.

We also performed certain additional compliance related functions pursuant to CIA that we entered into with the OIG.

which became effective as of December 21, 2015, and expired in February 2021, outlined certain specific requirements relating to compliance oversight and program implementation, as well as periodic reporting.

In addition, pursuant to the CIA, an

independent review organization annually performed a Medicare billing and coding audit on a small group of randomly selected Company clinics.

Our Compliance Program was modified so as to comply with the requirements of the CIA.

The term of the

CIA was five years and expired in February 2021.

Our strategy is to acquire physical therapy practices, develop outpatient physical therapy clinics as satellites within existing partnerships, acquire industrial injury prevention services businesses, and to continue

to support the growth of our existing businesses requires a talented workforce that can grow with us.

It is our policy that any employee who fails to comply with compliance program requirements or who negligently or deliberately fails to comply with known laws or regulations specifically addressed

in our compliance program should be subject to disciplinary action up to and including discharge from employment.

The Compliance Committee, compliance staff, human resources staff and management investigate violations of our compliance program

and impose disciplinary action as considered appropriate.

As of December 31, 2023, we employed approximately 6,720 people nationwide, of which approximately 3,899 were full-time employees.

It is crucial that we continue to attract and retain top talent.

To attract and retain talented employees, we strive to make our corporate office and all our practices and businesses a diverse and healthy workplace,

with opportunities for our employees to receive continuing education, skill development, encouragement to grow and develop their career, all supported by competitive compensation, incentives, and benefits.

Our clinical professionals are all

licensed and a vast majority have advanced degrees.

Our operational leadership teams have long-standing relationships with local and regional universities, professional affiliations, and other applicable sources that provide our practices with a

talent pipeline.

To attract and retain talented employees, we strive to make our corporate office and all our practices and businesses a diverse and healthy workplace, with opportunities for our employees to receive continuing education, skill development,

encouragement to grow and develop their career, all supported by competitive compensation, incentives, and benefits.

Our clinical professionals are all licensed and a vast majority have advanced degrees.

Our operational leadership teams have

long-standing relationships with local and regional universities, professional affiliations, and other applicable sources that provide our practices with a talent pipeline.

We provide competitive compensation and benefits programs to help meet our employees’ needs in the practices and communities in which they serve.

These programs (which can vary by practice and employment

classification) include competitive base salaries, incentive compensation plans, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, education assistance, mental health,

and other employee assistance benefits.

These programs (which can vary by practice and

employment classification) include competitive base salaries, incentive compensation plans, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, education assistance, mental

health, and other employee assistance benefits.

We invest resources to develop the talent needed to support our business strategy.

Resources include a multitude of training and development programs delivered internally and externally, online and instructor-led,

and on-the-job learning formats.

Resources include a multitude of training and development programs delivered internally and externally, online and

instructor-led, and on-the-job learning formats.

We expect to continue adding personnel in the future as we focus on potential acquisition targets and organic growth opportunities.

AVAILABLE INFORMATION

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act

are made available free of charge on our internet website at www.usph.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange

Act are made available free of charge on our internet website at www.usph.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

The SEC maintains a website that contains reports,

proxy and information statements, and other information regarding our filings at http://www.sec.gov .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business